We track more than 800 hedge funds and measure the performance of their long stock picks in real time. We created a giant $1.6 trillion portfolio of hedge funds’ long positions, and while it is true that hedge funds had some high profile losses this year that are “celebrated” by the media, their stock picks actually outperformed the S&P 500 Total Return Index by 50 basis points and the Russell 2000 Index by 410 basis points during the first 2 months of this year. So, on average it is a good idea to pay attention to what hedge funds are doing. Keeping this in mind, let’s take a look at the hedge fund activity in Synchrony Financial (NYSE:SYF).
What a difference three months makes. One quarter after ranking as one of the least favorite large-cap stocks among the funds in our system, with just 1.1% of its shares being held by the investors that we track, Synchrony Financial experienced a tidal wave of investor enthusiasm in the fourth quarter, with 17% of its shares held by investors in our database at the end of 2015. The total number of hedge funds with long positions in SYF skyrocketed to 82 from just 21, while the value of their holdings leapt to $4.31 billion from $292 million. The stock’s ownership among the billionaires that we track received an even greater boost, jumping to 15 from just 2.
Why are investors going crazy for Synchrony Financial now? Well, the primary answer is likely a disappointment in comparison to what such a potential catalyst COULD have been, and it’s simply that General Electric Company (NYSE:GE), which SYF was spun-off from in mid-2014, executed a $20.2 billion share exchange during the quarter that shed GE’s 85% ownership in Synchrony to essentially buy back its own shares, reducing its float by about 7%. That process helped to push investors into SYF and greatly boost the amount of available shares of SYF for other investors. Of course, that in and of itself doesn’t explain why the stock is so popular, which can partly be attributed to some of the other catalysts during the quarter, including its inclusion in the S&P 500, analyst upgrades, deals inked with new retailers, and guidance being raised to new heights.
SYF has a strong position in the retail payments space, where it provides private-label credit card programs for clients/partners such as Amazon.com, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT), and there’s potential for other big clients in the future, with recent suggestions from Nomura that SYF and Paypal Holdings Inc (NASDAQ:PYPL) should join forces. SYF trades at a P/E of just 10.8 and is expected to begin making dividend payments to shareholders later this year.
With that out of the way, let’s check out the fresh hedge fund action surrounding Synchrony Financial (NYSE:SYF).